Car and Universal Finance Co Ltd v Caldwell

A party defrauded into a contract ordinarily rescinds it only by communicating an unequivocal election to the other party. That requirement does not enable a fraudulent buyer deliberately to defeat rescission by absconding and making communication or repossession impossible.

In those exceptional circumstances, the innocent party may rescind by overt and unequivocal acts which show a final decision to disaffirm. Promptly reporting the fraud and taking all reasonably possible steps to trace and recover the goods may suffice.

Caldwell sold a motor car to Norris, who obtained it by fraud using a worthless cheque. Norris acquired a voidable title, disappeared, and the car passed through Motobella Company Ltd before being sold to G. & C. Finance Corporation Ltd, an admitted bona fide purchaser for value.

On discovering the fraud, Caldwell promptly informed the police and the Automobile Association and took all practicable steps to find Norris and recover the car. Lord Denning MR held at trial that those acts rescinded the sale despite the absence of communication to Norris. He also held, alternatively, that Motobella were general agents of G. & C. Finance Corporation Ltd and that their notice of the defective title was imputed to it.

The appeal concerned whether Caldwell had effectively avoided the contract before the sale to G. & C., and whether the dealer had authority to investigate title for the finance company.

1. The appeal was dismissed unanimously. Sellers LJ, Upjohn LJ and Davies LJ held that Caldwell had effectively rescinded the fraudulent sale on 13 January, before the later sale to the bona fide purchaser.

2. The ordinary rule is that a party entitled to rescind for fraud or misrepresentation must communicate an unequivocal election to the other contracting party. An uncommunicated private intention is ineffective. The authorities concerning election, including Scarf v Jardine 7 Appeal Cases 345 and Reese River Silver Mining Co v Smith Law Reports 4 House of Lords 64, did not govern the exceptional circumstances of a fraudulent buyer who deliberately absconds.

3. Where such a buyer makes communication and repossession impossible, he cannot insist upon communication as a condition of rescission. The innocent seller may evince a final election to disaffirm by overt acts short of communication or recaption. Otherwise the rogue could use the very fraud to prevent the exercise of the innocent party’s right.

4. Caldwell’s immediate report to the police, his identification of Norris, and his use of the Automobile Association and police to trace the car showed as clearly as possible that he had been swindled and wanted the car returned. Nothing more could reasonably have been required. The court left open the position where the misrepresentation is innocent.

5. The court rejected Lord Denning MR’s alternative agency ground. A dealer may act for a finance company for limited purposes connected with delivery to a hirer, but a dealer selling a car to the finance company is not, without an express mandate or trade custom, the company’s general agent to investigate title. The dealer’s warranty of title was a contractual protection, not a basis for imputing the dealer’s knowledge to the purchaser. This conclusion was not necessary to the dismissal of the appeal.

• Court of Appeal: Dismissed the appeal and upheld the conclusion that the contract had been rescinded before the later sale.

• Queen’s Bench trial: Lord Denning MR held that Caldwell had rescinded by unequivocal acts despite being unable to communicate with the fraudulent buyer. He also accepted an alternative agency ground. The lower-court citation is not stated in the judgment.